Budgeting Process
Budgets are often met with much hesitation. Often times, managers feel that the process is often too long and really does not help them run their departments or business. Let¡¦s explore the various stages of the budgeting process and evaluate their effectiveness. Then review how the role of the budget could serve as an analytic tool and be used to evaluate organizational performance, eliminate inefficiencies in an organization's performance, and be a part of the business control cycle. How can a company go from point A to point B? According to Leading Edge Alliance, a budget is like a roadmap for business growth or driving directions (2007). What does budgeting entail?
The Process
Budgeting is the process of: identifying, gathering, summarizing and communicating, financial and non-financial information about the company¡¦s activities for a set period.
During the identifying phase, activities consistent with corporate strategy are identified by various departments such as: production, marketing & research and management. Once identified, activities are evaluated and screened by estimating how they affect future firm cash flows and hence, the firm's value (Peterson & Fabozzi, 2002). This stage is important to the company's future success. It provides management with the opportunity to carefully match the goals of the company with the resources necessary to reach or exceed those goals. Gathering information may start with an estimate of expected revenues and costs, but as the analysis is refined, data from marketing, purchasing, engineering, accounting, and finance functions are put together (Peterson & Fabozzi, 2002).
In creating a budget, decision makers attempt to forecast numbers as accurately as possible. Doing this requires detai ...